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    SIP vs lump sum: Which is better for ELSS investment?

    SIP vs lump sum: Which is better for ELSS investment?

    SIP vs lump sum: Which is better for ELSS investment?
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    By Anshul   IST (Updated)

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    According to financial experts, deciding whether to go the SIP or lump sum route while investing is dependent on several factors.

    Equity Linked Savings Scheme (ELSS), a tax-saving mutual fund, comes with a statutory lock-in of three years.  Under ELSS, funds can be parked using both Systematic Investment Plan (SIP) and lump-sum investment option. In SIP mode, an individual is required to invest a small amount of money in a disciplined way, while in lump-sum investment, he/she can put the fund in one go at the start of the investment cycle.
    According to financial experts, deciding whether to go the SIP or lump sum route while investing is dependent on several factors.
    "Investing a lump-sum amount makes sense if you are investing at the end of a financial year to claim tax deductions," said Archit Gupta, Founder and CEO of ClearTax, an income tax e-filing platform.
    "However, at the start of a new financial year, it's always advisable to take the SIP route, especially if you are salaried and risk-averse," explained Gupta.
    Starting an SIP early in ELSS funds means an individual doesn't need to indulge in last-minute tax-saving practices which may otherwise result in under-utilisation of the tax exemption limit. ELSS offers tax deductions under the provisions of Section 80C of the I-T Act.
    According to Harsh Jain, Co-founder, and COO, Groww - an online investment platform, SIP allows investors to invest steadily with a small sum. This spreads out the financial strain unlike lump-sum mode, in which a large investment amount is needed.
    "An SIP lowers the risk of market fluctuations as only a small part of one’s investment faces market volatility. This frees investors from the hassle of timing the market," he said.
    SIP mode of investment also provides the benefit of rupee cost averaging. This allows fund managers to buy more units when the market is low and reduce the per-unit cost of investment.
    Another advantage that SIP has over the lump-sum mode is the lock-in period.
    "If you invest via the SIP route, you would be able to redeem your fund units sequentially post the lock-in period. For instance, your investment in ELSS using lump sum deposit will mature as a whole after 3 years, whereas deposits made via SIP will start maturing one by one (depending on the months of investment) after the lock-in period ends," says Jain.
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